Failure of Foodpanda

Failure Of Foodpanda: Major Lessons for Startups

The failure of Foodpanda comes at a point when there is a lot of scope for gaining market share. It is a chicken and egg problem if there are not enough restaurants then the customers won’t come, and if there are not enough customers then the restaurants won’t tie up with the food delivering services. In the last decade, more than 20 food delivering start-ups have popped up in several cities of India like Mumbai, Gurgaon, Pune, Bangalore etc. Majority of them failed to survive the cut-throat competition, while companies like Swiggy and Zomato are still now catering to only 5% of the total customers in India. More than 2 million customers are ordering food, and the online sites are serving a meagre percentage.

At the beginning of the decade, Foodpanda was founded across the Asia Pacific and South East Asia, covering Europe, Thailand, Malaysia, India, Philippines, Malaysia. But by the middle of this decade, Foodpanda has lost its image in the global market. In 2014, it sold its Delivery Club business to Russia for $100 million, and in the same year, the German Delivery Hero acquired the Foodpanda group. In 2017, the Foodpanda was acquired by Ola in an all-share deal. Since then, the business of the company has grounded; Ola fired hundreds of employees from Foodpanda in 2017, hinting at an imminent financial crisis.

Several reasons contribute to the failure of Foodpanda, like fake restaurants and orders, miscommunication, technical faults, unstructured business model and lack of ownership. Rohit Chadda, his brother Mohit Chadda quit the company in August 2016, and few people knew this. The employees of the company were not aware of the ongoing matters, they were receiving calls from the customers and upon not delivering food they would give free vouchers to the customers.

The number of fake customers increased as these kinds of free vouchers were lucrative to them? How did this happen? The loophole was that the company did not follow up with either the customers or the restaurants. When a customer is selecting a restaurant from their site, it was rather a transaction between the customer and the restaurants. Foodpanda had no clue about the order. This way, several restaurants and customers exploited the company and contributed to the failure of Foodpanda.

On 16th May 2016, a Mumbai based fast-food chain called off the tie with Foodpanda, stating it had 1.5 Lakh rupees due with the delivering service company, and that the company was stalling the payment. The real reason was that Foodpanda did not have any record of any such order and transaction. This decade witnessed Internet explosion and a surge of digitization and standing at such a juncture this delivering service failed to align with the evolving demands of the digitized customers. The app listed several restaurants that were shut down or permanently closed. The reason behind such a blunder might be Foodpnada did not want to lose customers. But the strategy was faulty to a great extent.

Foodpanda often failed to communicate with the customers and restaurants. Many times the customers would call the restaurants directly to enquire about the delayed delivery, but the restaurants were not informed about their order placed on the app. Foodpanda did not communicate on cancelled orders, their prompt actions and miscommunications pulled the business down to the ground. According to the owner of a Chinese fast-food chain “I mean, customers call us complaining that the Foodpanda voucher is not working. That’s got nothing to do with us. We don’t have to follow up on payment. But if there is a discrepancy, then god help you. A lot of times, we just let it be.”

In 2014, Rohit Chadda, the co-founder and the managing director of Foodpanda started another company, Ziner. The initial design of the website and the data of Ziner looked similar to that of Foodpanda. When asked to Chadda, he said he did not own any such company and that the data of Foodpanda was not shared with any company. Since 2012, the company had made a revenue of above $300 million from the Rocket Internet and Goldman Sachs.

After four years in 2016, more than 100 people have quit the company from several locations like Delhi, Mumbai, Pune, Gurgaon and their stories give a very negative picture of the whole scenario. In 2014, Foodpanda acquired Pune based Tasty Khana. Its founder Shachin Bharadwaj was immensely displeased about the lack of processes, fake orders, fake transactions, financial discrepancies, open Excel sheets that were open to all and utter mismanagement. The failure of Foodpanda was irreversible by this time.

As per the statement of a former Foodpanda official, there was a rift between Chadda and Bharadwaj as the latter wanted an independent audit procedure. He said “It didn’t go down well,” he says. “It was like ‘You are trying to play politics and digging up bad things’. The whole thing of doing an audit was brushed aside. And just the next day, Rohit and Bharadwaj decided to steer clear of each other’s turf.” 

Another former official of the said company said “There are no checks. The whole operation is running on Excel sheets. You know simple tools like a one-time password (OTP) for the order, a real-time system which alerts managers to spikes in orders, another real-time system to restrain a restaurant from processing more than a certain number of vouchers—there was nothing. And we fought a lot to build something, but the attitude was, just let it be. This was the attitude from the top.”

The number of fake restaurants on Foodpanda was close to 400, the company on-boarded the restaurants without verification and that leads to problems. The suspicion over contracting vendors, their payments, the restaurants, customers, nothing was in place for the Foodpanda. Everything was in chaos, and the top officials did not pay any such heed to the problems, resulting in utter failure of Foodpanda.

Following the path of Zomato, Foodpanda decided to buy tablets and give them to the restaurants, so that when an order is placed on the company’s site, the order will be visible to the restaurant as well. Abhishek Mandal, Head of operations of Just Eat India, a company acquired by Foodpanda, gave a quotation of Rs 10,000 per tablet. But soon after, Mandal was replaced by Shray Gulati. By another former official who prefers to be anonymous said “What we do know is that when the tablets arrived, they were neither of the ordered specification nor in the ordered quantity. Also, they had been bought at a huge mark-up, around ₹ 20,000 per tablet, from a vendor in Nehru Place.”

Foodpanda running in business losses
Revenue & PAT of key players in Food Tech

Source: Tofler

There were only problems with Foodpanda. Nothing worked properly, one can find loopholes everywhere and the higher authorities were nowhere to be seen. From the mistakes of this startup, there are some valuable lessons to learn.

  • Structure and a business plan are essential: How to run the business? How to determine the authenticity of the restaurants and vendors? Nothing was planned for Foodpanda. Launching the app and promoting commercials will not help in business growth. Both the restaurants and customers were unhappy due to the utter mismanagement in the overall approach.
  • Nothing is possible without communication: The customers, Foodpanda and restaurants, these primary three elements were not aligned as per communication. No initiative was taken to improve the communication, thus leading the customers opting the other sites.
  • The company’s ownership was blurred: Rahul Chadda and Mohit Chadda quit the company, but it was their company right? Rahul was one of the co-founders of the company. Simply leaving the company and not making any effort to improve the situation will not do any good. Ola has acquired Foodpanda, but the condition of Ola is itself volatile at present.

The volatile market conditions and the steep competitions can be an obstruction in your way, but there ways to overcome them as well. There is a saying that “Man proposes. God disposes ”. You never know what is there in future, what you think is right now, but that may not feel right in future. In order to avoid such business blunders, like that of the failure of Foodpanda, and mental turmoil, you can take certain steps, like talking to the experts in detail. Years of experience, both good and bad, have honed their professional skills and business acumen.

It is good if you want to follow your passion and be your own boss. You want to avoid such mistakes, but who can guide you? Google will give you hundreds of websites, but an expert will guide you thoroughly in your journey. Do you want to talk to experts in detail? Talk to our niche skilled experts now to know the diverse competitive market in greater detail! We at Vedak have an exclusive pool of experienced industry professionals and veterans who have in-depth knowledge about the business nitty-gritty. Contact us to know more. 

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